In 2018, the capitalisation of the cryptocurrency market, including the most famous digital currency, Bitcoin, dropped almost 80%.
When the creator of Bitcoin, under the alias Satoshi Nakamoto, wrote his "White Paper", he could hardly have expected that his creation would become many times more expensive than gold. At first, Bitcoins were mainly mined and exchanged by programmers who are fond of cryptography. Bitcoin was perceived more as something fun than a currency or asset of great value.
An entire industry of miners has grown, namely those who directly process Bitcoin and other cryptocurrencies. China has practically become a monopolist on the market, probably because of its good industrial base for the production of mining equipment, as well as low-cost electricity, which is needed a lot for the extraction and processing of cryptocurrency. China accounts for more than 70% of the world's production of Bitcoin. Moreover, the country has turned out to be the manufacturer of the most advanced mining technology: Bitmain's ASIC Bitcoin Miners occupy three-quarters of the world market.
However, when the industry reached such an impressive scale, the Chinese authorities became worried. First, they understood that the price of cryptocurrency is a rather conditional thing, depending on speculative sentiments. At the same time, the mining market, which has grown in China, has accumulated hundreds of millions of real dollars, which can easily be lost in the event of volatility. Not to mention the fact that it was no longer speculators who started investing in cryptocurrencies, but ordinary citizens.
"Chinese authorities are going to take quite tough measures. First, in order to ensure a normal and uninterrupted supply of electricity to the population and industry, it is necessary to limit the consumption of electricity by miners. Secondly, cryptocurrencies, and Bitcoin in particular, threaten the state's monopoly on the issue of money. Moreover, in the last two or three years, the country's authorities have been pursuing a policy of controlling the outflow of capital in order to maintain the stability of the yuan. And the cryptocurrency negates the efforts of the regulators: capital is withdrawn from the country with the help of it, including criminal money. It became that way to bypass financial control".
Far more often investors have been scared away by frequent failures on cryptocurrency exchanges. One time they were subjected to hacker attacks, with the data of participants being leaked to third parties. The other time, cryptocurrency wallets were cracked. Lastly, the suspension of the operations of exchanges themselves brought considerable losses. The most serious incident occurred last fall on the Chinese stock exchange OKEx, where Bitcoin futures are traded. During the sharp fall in the price of Bitcoin, the exchange suddenly "crashed" — the participants were "thrown out" from personal accounts and they could not perform any operations.
Finally, the lack of consensus within the community of miners and developers does not inspire investors. "Forks", or Bitcoin divisions, have happened more than once. A branch later developed from the original Bitcoin — Bitcoin Cash. Then even this branch split. It can't be said that it was specifically one of these factors that had the decisive impact on the Bitcoin rate. Most likely a combination of all these factors pushed the cryptocurrency market down.
Bitcoin will enter the New Year with only 20% of its value compared with the same period a year earlier. The hype has passed and now only professional players remain. Against this backdrop, countries are increasingly interested in using blockchain to translate national currencies into digits and gain unprecedented control over the financial system. Venezuela has attempted to improve the economy of the national cryptocurrency, El Petro, which is backed by oil assets.
China has also announced plans to launch its own national cryptocurrency. The vice-governor of the People's Bank of China, Fan Yifei, noted that, at first, the digital yuan would replace only the monetary aggregate M0 (cash in circulation). The use of cryptocurrency in investment activities will be prohibited. The introduction of digital currency and blockchain will allow Chinese authorities to significantly reduce the volume of the shadow economy. Based on the statements of the vice-governor of the China Central Bank, it follows that transactions should not be anonymous.
Thus, the crypto-yuan will increase the transparency of transactions ("black" bookkeeping will no longer be possible). Secondly, the cost of maintaining a digital currency system is much lower for the regulator than the cost of issuing and disposing of paper money. And thirdly, using cryptocurrency, it would be possible to make cross-border money transfers much faster and cheaper.
The views and opinions expressed by the speaker do not necessarily reflect those of Sputnik.
The views and opinions expressed in the article do not necessarily reflect those of Sputnik.